Cooper Tire acquired by India firm for $2.2 billion

Company says Findlay operation safe

6/12/2013

BY TYREL LINKHORN AND JON CHAVEZ BLADE BUSINESS WRITERS

A combined Cooper Tire & Rubber and Apollo Tyres would be the world’s seventh largest tire maker.

FINDLAY — A tire company based in India will spend $2.22 billion to buy Cooper Tire & Rubber Co., but officials said there were no plans to pull out of Findlay or shut down any of Cooper’s four U.S. manufacturing plants.

The deal, announced on Wednesday, gives India’s Apollo Tyres Ltd. a large and well-established presence in the U.S. market, something it currently lacks but desperately wants.

Cooper, which has been headquartered in Findlay for 96 years, is the fourth-largest tire manufacturer in the United States, predominately making replacement tires for cars and light trucks.

The company posted record revenues of $4.2 billion last year. It was a Fortune 500 company from 1983-94 and again from 2001-05. Cooper fell off the list after selling its Cooper-Standard Automotive subsidiary in 2004.

Cooper has little market overlap with Apollo, which is part of what made the acquisition so appealing.

Together, the combined company will be the seventh-largest tire company in the world, with 2012 revenues of $6.6 billion, officials said.

Speaking Wednesday with The Blade, Cooper’s chief executive officer said the company had not been looking for suitors, but Apollo’s offer was too good to ignore.

“We’re in a position of strength,” Roy Armes said in a phone interview. “We came off 2012 with a record year in sales and profitability. We think this [offer] is a very good value for our company. I think we’ve been undervalued with our performance the last few years, and this is a very compelling offer.”

Cooper Tire CEO Roy Armes.

Apollo will pay Cooper stockholders $35 per share in the all-cash deal, a 43 percent premium over where Cooper’s shares closed Tuesday. It’s also 25 percent more than Cooper’s highest share price in the last decade.

The purchase agreement has been unanimously approved by both companies’ boards of directors. The deal is expected to be finalized in the second half of 2013, pending regulatory approval and approval by Cooper’s stockholders.

Mr. Armes said Cooper expects to keep its current management team in Findlay and maintain all its manufacturing and distribution facilities. That includes a tire plant in Findlay that employs more than 1,000 people.

Apollo is expected to honor Cooper’s existing labor contracts at those plants.

“They want us to keep operating as we have been, because that’s been what’s made us successful,” Mr. Armes said.

Union leaders at Cooper’s Findlay plant didn't return phone calls Wednesday. A union official at the company’s Texarkana, Ark., plant said the news was surprising. He said the general feeling was that business would go on as usual.

In a statement, Neeraj Kanwar, Apollo’s vice chairman and managing director, said that with Cooper on board, Apollo will have a significant presence in the United States, Europe, and China — the three largest and most important automotive markets in the world.

He said Apollo is committed to keeping much of Cooper’s existing structure in place.

“Importantly, both Apollo and Cooper have built strong reputations on the strength of their people, and this transaction will maintain the networks and work forces in each organization’s respective regions, while creating new opportunities in others,” Mr. Kanwar said. “We are excited by the possibilities created by our partnership and look forward to welcoming Cooper’s employees to the Apollo family.”

Room for expansion

Dennis M. Byrne, an economics professor emeritus at the University of Akron and an expert on the global tire industry, said the deal makes sense for Cooper Tire because it mostly is stuck in the United States market and would like to break out.

“They were trying to become a name-brand player internationally but they just weren’t nearly the size of a Bridgestone, Michelin, or Goodyear. They tried to go to China [in 2003], but all the bigger companies already had gone to China,” Mr. Byrne said.

“They looked to go elsewhere overseas but weren’t big enough to do it. In India, Apollo was looking to get into North America, so it made perfect sense from a cooperative view for both of them to get together,” Mr. Byrne said.

“For Cooper, they are a small player in a competitive and increasingly stagnant [North American] market, and India is beginning to show signs of really developing economically,” Mr. Byrne said.

“Apollo now will have access to technology and distribution in the United States. This allows them entry into a market they couldn’t get entry into,” he said. “They get access to a new market, new technologies. This seems very much a good thing and I can’t imagine Apollo wanting to close down any Cooper operations.

“I don’t see a lot of downside to this deal,” Mr. Byrne added.

Bit of a surprise

John Healy, an equity analyst at Northcoast Research in Cleveland, said Apollo’s acquisition of Cooper Tire was somewhat of a surprise given that rumors of such a deal last fall seemed to die out.

“I felt Apollo could end up in some sort of relationship with Cooper, but the rumors had been dying down and most were being seen, to us, as just speculative in nature. Then this re-emerged somewhat out of nowhere,” Mr. Healy said.

“But from a strategic standpoint, we can really see why Apollo would want to do this,” the analyst said. “Apollo wants to be a top-10, top-tier global company, but they concluded that they couldn’t build that themselves.

“So they looked at Cooper and they saw the great job Cooper has done with $4.2 billion in revenues and $220 million in earnings. Apollo saw that as very attractive,” Mr. Healy said. “And Cooper saw, for them, the opportunity to take the next step that they needed for a global footprint.”

While calling the joining good for both, Mr. Healy said he has doubts it will have any major impact on the tire industry. The new firm “will only be the seventh-largest combined company when it gets approved, so I don’t think it will change the competitive dynamics of the industry.”

Mr. Healy agreed that Apollo is unlikely to change Cooper Tire much.

“Apollo really doesn’t have a presence in America and Cooper has strong assets and a great reputation, and a dealership distribution network,” he said.

“I think Apollo’s main strategic objective was to become a major global company and they needed Cooper to do that. Both were looking for something the other had,” Mr. Healy said. “Both seem to be getting what they want.”

While the sale of Cooper generated a lot of talk in Findlay, officials there didn’t seem worried about the future of one of the city’s top employers.

‘A great move’

“I think there’s a lot of concern of what the future is of Cooper, because they are such a large player in Findlay,” Findlay Mayor Lydia Mihalik said. “What I’m able to tell [people] is by all accounts this is a great move for Cooper, ensuring Cooper’s long-term sustainability.”

Tony Iriti, director of the Findlay-Hancock Economic Development office, also said there are few concerns that Findlay or Hancock County will be much affected by the sale.

“I’ve been following it and trying to think it through, and the fact that the two companies are so complementary,” Mr. Iriti said.

“When you have two companies that have their own hierarchies, I would think on the administrative side there’s got to be some overlap. That could be affected,” he said. “But I don’t see anything else being affected. That’s kind of the word that we’ve gotten today. We’re pretty optimistic.”

Greg Smith, publisher of industry trade publication Modern Tire Dealer, said the deal could trigger mergers between other tire companies not anxious to give up market share to a new, stronger Cooper Tire in North America.

“We went through a flurry of purchases in the late ’80s. Bridgestone bought Firestone and soon after that Pirelli bought Armstrong. That was the first notice this industry took that it was becoming a global industry,” Mr. Smith said.

Although Cooper Tire has performed very well financially over time, “People in the industry have long wondered a) how long they would stay in business or b) when it would be acquired.”

Mr. Smith said it’s reasonable to assume that Apollo soon will use Cooper Tire’s distribution network to introduce its own brands into the U.S. market.

Although both Cooper Tire and Apollo will be stronger, the new company isn’t going to challenge the industry leaders soon, Mr. Smith said. Bridgestone, with sales of $31 billion, Michelin at $26 billion, and Goodyear at $21 billion are all too strong to lose much in the way of market share. Cooper Tire and Apollo had combined sales of $6.6 billion last year.

Contact Tyrel Linkhorn at: tlinkhorn@theblade.com or 419-724-6134.

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